Bill Ackman to wind down SPAC, return $4B to investors(seekingalpha.com)
seekingalpha.com
Bill Ackman to wind down SPAC, return $4B to investors
https://seekingalpha.com/news/3856007-bill-ackman-to-wind-down-spac-return-4-billion-to-investors
55 comments
This reminds me so much of the ICO bubble. It just seems like fancy ways of dancing around SEC regulations. At least the ICO folks were honest about avoiding regulations, a SPAC seems like it is very transparently saying "we want to have a public company for the sole purpose of acquiring a private company that can't pass SEC scrutiny". It's a "saying the quiet part out loud" thing.
Doing a traditional IPO is a slow process that can preoccupy the company and set it back for a year or more. For some growth companies it is a rational and legitimate choice to go public through a SPAC.
Having gone through an IPO (cofounder DigitalOcean), it honestly wasn't a set back internally. The majority of the burden is on the finance team, having your finances in order and audited is a huge benefit to the business, the rest of it is around internal process control, some are perfunctory, others are good investment of time.
The rest of the work is done with the bankers as they draft the S-1 along with information provided by the management team.
In terms of pitching the bankers, ours was during Covid so there was no travel, it was all done remotely, and given the large financing event that the IPO was, the amount of time invested vs the capital raised was certainly worth it.
IPOs open up liquidity for shareholders, early employees, also provides new avenues for the business to create financing for various activities as you are now seen as a premier partner with all of the major banks. Honestly worth the effort, so long as you continue to run the business with a long term mindset and don't give in too much to the quarterly pressure it's a huge plus.
Besides the obvious benefits to shareholders and early employees it also does open up a significant amount of opportunities when it comes to M&A, if are strategic with that, it can dramatically change the outcomes for your business.
The rest of the work is done with the bankers as they draft the S-1 along with information provided by the management team.
In terms of pitching the bankers, ours was during Covid so there was no travel, it was all done remotely, and given the large financing event that the IPO was, the amount of time invested vs the capital raised was certainly worth it.
IPOs open up liquidity for shareholders, early employees, also provides new avenues for the business to create financing for various activities as you are now seen as a premier partner with all of the major banks. Honestly worth the effort, so long as you continue to run the business with a long term mindset and don't give in too much to the quarterly pressure it's a huge plus.
Besides the obvious benefits to shareholders and early employees it also does open up a significant amount of opportunities when it comes to M&A, if are strategic with that, it can dramatically change the outcomes for your business.
Second that here, I was an engineer at DO when the IPO work was happening and I was either working on features to customers as usual or audit features we would eventually need anyway. It wasn't the experience I expected at all after multiple people said it was going to be super complicated, the company would stop and stuff like that.
The work was mostly building audit trails with "who, what, when, and why" for the actions people were taking in specific parts of our systems (wasn't even required for everyone/everything). From what I saw most of the bad experiences people seem to have had is because there is no clear understanding from the auditors what is needed or people inside the business go way overboard with what is actually required.
We were always very clear with who were the teams that HAD to follow all audit processes and those where it wasn't required so while some places in the business had to do a lot of work (like finance/billing and platform teams) I doubt most product teams had to do much work other than changing some config files or adding some extra logging here and there.
It did help we already had a pretty strong audit trail culture for most operations internally, so most people would either produce extra events or add more fields to existing events instead of having to build a completely new solution to do it.
The work was mostly building audit trails with "who, what, when, and why" for the actions people were taking in specific parts of our systems (wasn't even required for everyone/everything). From what I saw most of the bad experiences people seem to have had is because there is no clear understanding from the auditors what is needed or people inside the business go way overboard with what is actually required.
We were always very clear with who were the teams that HAD to follow all audit processes and those where it wasn't required so while some places in the business had to do a lot of work (like finance/billing and platform teams) I doubt most product teams had to do much work other than changing some config files or adding some extra logging here and there.
It did help we already had a pretty strong audit trail culture for most operations internally, so most people would either produce extra events or add more fields to existing events instead of having to build a completely new solution to do it.
out of interest, did you consider a SPAC at any point and if so, what were the reasons for/against?
For people (like me) with a very negative perception of SPACs (a vehicle through which a company that can’t go public the “proper” way goes public) it would be very interesting to hear whether you weighed up the relative benefits of IPO vs. SPAC, or if it was obvious to you that an IPO was the right way to go from the start.
Thanks!
For people (like me) with a very negative perception of SPACs (a vehicle through which a company that can’t go public the “proper” way goes public) it would be very interesting to hear whether you weighed up the relative benefits of IPO vs. SPAC, or if it was obvious to you that an IPO was the right way to go from the start.
Thanks!
The only reason we would consider a SPAC is to decrease time, but you do take a reputation hit. You also aren't building relationships with banks, which is very positive, again because it provides future financing needs which could be very useful during acquisitions.
Also, while the IPO process does take about a year, from start to finish, give or take a quarter, the conversation about an IPO starts well in advance. I think the the first time we met with Goldman Sachs was probably in 2017 or 2018 (don't quote me) to discuss IPO planning, and the company went public in 2021.
So while it does take longer through a traditional IPO, the conversation starts much, much earlier, and because it's a year long process, that's part of the planning as well, so it doesn't really come up as a year delay in the roadmap.
So we were already well in to our planning phase as the whole SPAC craze was hitting, and so there were only downsides to it, not real benefit or saving a quarter or two in terms of timing.
Also, while the IPO process does take about a year, from start to finish, give or take a quarter, the conversation about an IPO starts well in advance. I think the the first time we met with Goldman Sachs was probably in 2017 or 2018 (don't quote me) to discuss IPO planning, and the company went public in 2021.
So while it does take longer through a traditional IPO, the conversation starts much, much earlier, and because it's a year long process, that's part of the planning as well, so it doesn't really come up as a year delay in the roadmap.
So we were already well in to our planning phase as the whole SPAC craze was hitting, and so there were only downsides to it, not real benefit or saving a quarter or two in terms of timing.
Could you say a few words about internal process control and how you guys approached that? Thank you!
I would be the wrong person to ask about that, as I tried to stay as far away from the details of that along with the low level details around finance. But basically as a public company there a bunch of regulations around a bunch of internal processes, think of it like having a process for how to create emails, or get rid of emails, or have communications, or do various number of internal things, or how you treat customer data.
It is a bit annoying, but ultimately reviewing how those systems are operated in the business and documenting them, while tedious, is a good idea because it allows you to review your security measures and you can use it as a catalyst to make changes and invest in areas that often get neglected in the product market fit/growth phase of a business.
So instead of looking at it as a burden, it becomes an opportunity to just improve internal controls.
It is a bit annoying, but ultimately reviewing how those systems are operated in the business and documenting them, while tedious, is a good idea because it allows you to review your security measures and you can use it as a catalyst to make changes and invest in areas that often get neglected in the product market fit/growth phase of a business.
So instead of looking at it as a burden, it becomes an opportunity to just improve internal controls.
Thank you for your reply. Could you give an example of what kind of process is being documented? Is it something like "how to process a customer refund"?
I've worked in places where there were a lot of internal document for different workflows. Each workflow is supported by a set of features of a in-house developed tool. The same set of documents is used for on-boarding new joiners and auditing. Are these the set of documents you referring to?
If there is a tool that serve as a "no-code editor for internal processes", do you think it is serving any particular pain points?
Ya, and paying your taxes can be a long and arduous process too. That doesn't mean it's ok to just skip all the hard work.
Going public is not difficult "just because". It's difficult because there are a lot of reporting and due diligence and research and compliance required before your company is opened up to the public market for investment. It's there to keep garbage companies like Truth Social from going public and bilking unsophisticated investors of their money.
It seems to me that a spac is just a technically legal way to get around the spirit of the law.
Going public is not difficult "just because". It's difficult because there are a lot of reporting and due diligence and research and compliance required before your company is opened up to the public market for investment. It's there to keep garbage companies like Truth Social from going public and bilking unsophisticated investors of their money.
It seems to me that a spac is just a technically legal way to get around the spirit of the law.
I didn't say it's ok to do _because_ traditional IPO is troublesome.
It is ok to do because it is ok to do according to the regulators.
What I said is that there are legitimate reasons to use a SPAC vehicle, reasons other than pulling a scam on the investors.
It is ok to do because it is ok to do according to the regulators.
What I said is that there are legitimate reasons to use a SPAC vehicle, reasons other than pulling a scam on the investors.
It seems, so, that a lot of those legitimate reasons come down, in practical terms, to actually pulling a scam on retail investors.
The reasons why a company might want to skip the IPO process are obvious.
But what's the advantage to the other side of the deal, the new investors?
But what's the advantage to the other side of the deal, the new investors?
They can get in on a company much earlier than if it took the time to IPO. This gives higher risk and higher (expected) reward.
Higher reward because the SPAC pays a lower price than the IPO price? That seems to be against the interests of the company and the current investors, who want to get as much as possible from public investors, so I'm skeptical.
Or higher reward because the eventual price would be higher after an SPAC acquisition? I don't see why that would be true a priori, so what's the evidence?
Or higher reward because the eventual price would be higher after an SPAC acquisition? I don't see why that would be true a priori, so what's the evidence?
The advantage that your parent poster is suggesting is that the company that they've invested in spends more time and energy providing returns in their investment, and less time and energy jumping through arbitrary hoops. This increases the odds of good return.
> This increases the odds of good return.
Does it? The linked article says otherwise: "the extremely poor performance of SPACs that have completed deals during the last two years which has damaged market perceptions of going public by merging with a SPAC".
Does it? The linked article says otherwise: "the extremely poor performance of SPACs that have completed deals during the last two years which has damaged market perceptions of going public by merging with a SPAC".
I'm personally agnostic, but you seemed to not understand what the other poster was saying, so I'm helping you.
It seems to be not particularly hard to imagine having a principled belief that SPACs can be used legitimately for shareholder return, but that they also have recently been used indiscriminately, and that the right thing to do is be more careful about when you use this tool, not to forswear using the tool.
It seems to be not particularly hard to imagine having a principled belief that SPACs can be used legitimately for shareholder return, but that they also have recently been used indiscriminately, and that the right thing to do is be more careful about when you use this tool, not to forswear using the tool.
I understood just fine, yreg pointed out advantages to the company. You're doing the same, just reframing it as if advantages to the company are really advantages to public investors.
But those "arbitrary hoops" help protect public investors. How can investors "be more careful" if the information they need to make a careful decision isn't available or verified?
SPACs seem to be asking investors to invest based solely on faith in the SPAC management. Ackman's collected $4B without even choosing a company to invest in.
But those "arbitrary hoops" help protect public investors. How can investors "be more careful" if the information they need to make a careful decision isn't available or verified?
SPACs seem to be asking investors to invest based solely on faith in the SPAC management. Ackman's collected $4B without even choosing a company to invest in.
If you partially own a company, the advantage to the company is partially your advantage.
You appear to be trying to imply that the regulations and practices around going public are an unconditional good, in all cases, for all new investors in the company. That seems... very black and white. Have you ever been heavily involved in an IPO?
I want to be clear, I'm not saying that what's involved in going public is an unconditional negative -- but there's definitely friction that you pick up. Things that might be tuned too strictly, at least for your company, or that might make sense for other companies but are an arbitrary hoop for yours. Or well-intentioned rules and practices that just aren't accomplishing their intents.
If we say, in the universe of all companies going public, could some of them be materially helped by having a SPAC create a bespoke process for you in terms of how you go public, rather than the cookie cutter template? I mean, sure. And is that compatible with the idea that most SPACs today don't add much value? Also sure.
What's the balance of the situation on the ground? I don't know. I'd be dubious of SPACs right now, without dismissing the idea that in the right circumstances, they can be helpful.
You appear to be trying to imply that the regulations and practices around going public are an unconditional good, in all cases, for all new investors in the company. That seems... very black and white. Have you ever been heavily involved in an IPO?
I want to be clear, I'm not saying that what's involved in going public is an unconditional negative -- but there's definitely friction that you pick up. Things that might be tuned too strictly, at least for your company, or that might make sense for other companies but are an arbitrary hoop for yours. Or well-intentioned rules and practices that just aren't accomplishing their intents.
If we say, in the universe of all companies going public, could some of them be materially helped by having a SPAC create a bespoke process for you in terms of how you go public, rather than the cookie cutter template? I mean, sure. And is that compatible with the idea that most SPACs today don't add much value? Also sure.
What's the balance of the situation on the ground? I don't know. I'd be dubious of SPACs right now, without dismissing the idea that in the right circumstances, they can be helpful.
> If you partially own a company, the advantage to the company is partially your advantage.
We're talking about IPO/SPAC investors who don't own the stock yet.
Are you suggesting that current investors would pass the savings of skipping the IPO process on to new investors? That would be a tangible benefit of skipping the IPO process for public investors.
But no one seems to be willing to say that will happen.
We're talking about IPO/SPAC investors who don't own the stock yet.
Are you suggesting that current investors would pass the savings of skipping the IPO process on to new investors? That would be a tangible benefit of skipping the IPO process for public investors.
But no one seems to be willing to say that will happen.
I would think those doing it the 'long' way are spending more time and energy thinking of returns.
What actually are these legitimate reasons for SPAC, other than apparently nebulous instant increased returns for early investors?
What actually are these legitimate reasons for SPAC, other than apparently nebulous instant increased returns for early investors?
There is a very troubling trend to ignore regulations and comoliance. Either out of convenience or because the whole business model is build on it.
Those regulations are there for reason, and lot of comoanies adhere to them. If a "growth company" is unable or unwilling to do so, it should simply not be a public company (unable) or no business at all (unwilling).
Those regulations are there for reason, and lot of comoanies adhere to them. If a "growth company" is unable or unwilling to do so, it should simply not be a public company (unable) or no business at all (unwilling).
I don't understand the mindset of the people who are the investors in the SPAC IPO though. They are buying a loot box which could turn out to contain anything.
It’s not as bad as that. SPAC investors can get their money back after the deal is announced and before the merger is consummated.
Some SPACs had over 90% of such redemptions, which makes it complicated for the private company being acquired: the SPAC may appear to have, say, $300 million in cash, but when the merger is through you only have less than $30 million. Bad news for loss-making growth businesses.
Some SPACs had over 90% of such redemptions, which makes it complicated for the private company being acquired: the SPAC may appear to have, say, $300 million in cash, but when the merger is through you only have less than $30 million. Bad news for loss-making growth businesses.
I mean, it's pretty similar to investors in VC or PE or mutual / hedge funds: you are investing in the managers skill / talent to generate you a return.
Sounds to me like you understand the mindset perfectly!
We did an IPO last year took us 6 months and wasn't a huge amount of effort. SOX part of being public is much more challenging from an effort standpoint and requires effort from all departments. IPO process was handled by our finance dept. From the tech standpoint for the IPO, I just had to sit on a few conference calls from the bankers going over risks to the business. S1 was easy, wrote bullet points and the consultants did the rest.
I'd pick IPO over doing a vc funded round any day of the week. Effort is way less. I never had to give up full days during the IPO process. Never had people on site doing interviews with my team and going over my architecture and scrutinizing every decision I made.
I'd pick IPO over doing a vc funded round any day of the week. Effort is way less. I never had to give up full days during the IPO process. Never had people on site doing interviews with my team and going over my architecture and scrutinizing every decision I made.
I see it more as a balance of market pressures thing. An IPO is a private company saying it would like public money, a SPAC is public money saying it would like a private company.
And naturally there is less scrutiny on the SPAC because it’s in the driving seat on the acquisition and can cary out due diligence, where as the IPO you have to vet that the company is ok to go out to a market of a wide range of individuals who cannot do a due diligence individually.
The concept is nothing new, at least for Germany - we have long established two different variants of "shelf corporations" for the purpose of taking a short circuit to usual regulations: one that is explicitly created as a blank slate for a buyer to buy, usurp and use to be traded publicly ("Vorratsgesellschaft"), and the other one being a company that has been wound down but not formally dissolved ("Mantelgesellschaft"). The former is (or was, until Brexit) especially popular with British Ltd.-style companies because these were easier to set up than a German GmbH/AG.
Something like a SPAC is new as a concept, but in the same legal vein - the only difference is which side brings the capital. In the classic cases, the "acquired" company brings the capital, in a SPAC the acquiring company - but (at least here) it is of no matter legally.
Something like a SPAC is new as a concept, but in the same legal vein - the only difference is which side brings the capital. In the classic cases, the "acquired" company brings the capital, in a SPAC the acquiring company - but (at least here) it is of no matter legally.
https://news.crunchbase.com/business/terrible-spac-performer...
“For SPAC investors, however, the good news is there is only a limited distance left to fall. If you’re trading at $2 for instance, at least there’s only $2 left to conceivably lose.”
The SPAC scene in a nutshell haha.
“For SPAC investors, however, the good news is there is only a limited distance left to fall. If you’re trading at $2 for instance, at least there’s only $2 left to conceivably lose.”
The SPAC scene in a nutshell haha.
Are they serious? This reminds me of "it's already down 90%, only 10% left to drop". But it doesn't sound like they are joking in the article.
It’s a Poe’s Law moment for sure. But I get that a lot reading things like Crunchbase and Motley Fool.
Turns out that even if you're down 90% you can still go down another 100%.
Best performing SPAC of the year if investors are getting all their money back.
Are they? Most likely bought in at an overhyped valuation of over $20 and are now only receiving $20 back.
Still not as terrible as some SPACs, the all time high was around $30 for PSTH, so the worst haircut you could get is to be 33% down if you had bought at the very exact top.
How would they have lost money, other than management fees, if none of it was invested?
You bought shares on the secondary market above the listing price. You are only receiving money at the listing price. i.e.:
1. shares listed at $20, I buy one, paying Ackman $20
2. I sell it to you for $30, you pay me that money
3. Ackman returns $20 to you
It also works the other way around if you bought it from me below $20. You'd make a profit.
1. shares listed at $20, I buy one, paying Ackman $20
2. I sell it to you for $30, you pay me that money
3. Ackman returns $20 to you
It also works the other way around if you bought it from me below $20. You'd make a profit.
Opportunity cost - you locked up your money and it lost value due to inflation instead of being put into something that kept pace with inflation. Obviously, this is counterfactual, but that is the premise.
The flip side is that statistically one would have likely put it in a security that declined over the past year.
They should get the $20 back, and rights to buy into the next opportunity at a fixed price. I'm pretty excited about that.
SPACS were just a new solution to an old problem: Dumping overpriced assets to small investors. I've seen it all through my dad's investments, which local banks sold him. Younger people don't fall for that trick anymore, so et voila, SPACs are born. Same shit, new name. There was an article just a few weeks ago in the FT, that showed how PE firms are pumping up company prices by buying companies they already own. At the end this garbage needs to be dumped on someone, otherwise why bother.
It's an opportunistic play that didn't find an opportunity. Pretty reasonable to return the money.
Ackman still has a reputation to protect, so he needed to look for some sort of reasonable deal with good flippability (that's the Latin term). That's gone now with all the air deflating from the SPAC market. A SPAC play would not likely be the kind of thing he'd buy and hold for ages, especially as everyone knows there's some serious adverse selection going on concerning which firms will go for a SPAC.
There's a fair chance his sales guys are able to simply move the investors over into his main fund or some similar vehicle, so it's not actually such a big deal for him financially. Plus you get kudos for not doing something that might be seen as reckless or profiteering.
Ackman still has a reputation to protect, so he needed to look for some sort of reasonable deal with good flippability (that's the Latin term). That's gone now with all the air deflating from the SPAC market. A SPAC play would not likely be the kind of thing he'd buy and hold for ages, especially as everyone knows there's some serious adverse selection going on concerning which firms will go for a SPAC.
There's a fair chance his sales guys are able to simply move the investors over into his main fund or some similar vehicle, so it's not actually such a big deal for him financially. Plus you get kudos for not doing something that might be seen as reckless or profiteering.
I have a somewhat different opinion. He found a target, failed to meet SEC regulations with the negotiated deal and took the deal for his main fund. After that he basically threw the towel on the spac. This happened approx a year ago.
Not finding a good deal is understandable, finding a deal and messing it up not so much. With his army of lawyers this looks from the outside more an deliberate strategy then a honest mistake.
Edit: link https://www.bloomberg.com/news/articles/2021-07-19/pershing-...
Not finding a good deal is understandable, finding a deal and messing it up not so much. With his army of lawyers this looks from the outside more an deliberate strategy then a honest mistake.
Edit: link https://www.bloomberg.com/news/articles/2021-07-19/pershing-...
I was somewhat interested in PSTH when UMG was the target. Shame BA used PSCM instead of PSTH to buy the 10% stake from Vivendi...
Dabbled in SPACs since 2019. Glad I got out when it peaked.
I’m down 15% (don’t ask). When is the right time to sell?
The best time was at the peak. The second best time is now (*)
* - not an investment advice.
* - not an investment advice.
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